When enterprises in Vietnam wish to reorganize their businesses, business consolidation and mergers are the options that entrepreneurs can choose. However, these two methods have quite a lot in common; so, companies may face some difficulties when distinguishing them. In this article, LSX will give you a brief on the issue.
- 2020 Enterprise Law
Definition of business consolidations and business mergers
Hence the regulation in Clause 1, Article 200, 2020 Enterprise Law business consolidation is a case where two or more companies may merge and merge into a new company; by transferring all assets, rights, and obligations, and legitimate interests to the consolidated company, and at the same time terminate the existence of the consolidated companies.
On the other hand, a business merger means that one or several companies may merge into another company; by transferring all transfer of assets, rights, obligations, and legitimate interests to the merging company, and at the same time terminate the existence of the merged company.
Similarities between business consolidations and business mergers
- Firstly, only JSCs and LLCs are able to carry on the division and separation of business procedure
- Secondly, when performing mergers and consolidation, there must be a transfer of assets, obligations and interests to related companies
- Thirdly, when merging and consolidating, the related parties must send notices and official letters to employees, creditors, and partners about 15 days in advance.
- Fourthly, all these two actions have an impact on the corporate structure; so it is necessary to approve the Charter, appoint and elect new members to the executive apparatus. At the same time, a new business registration must be made for the company.
Differences between business consolidations and business mergers
In order to discriminate between business consolidations and business mergers; enterprises should acknowledge the following differences:
|Criteria||Business consolidations||Business mergers|
|Legal grounds||Article 200, Enterprise Law||Article 201, Enterprise Law|
|Form||The related company brings all its assets, interests, obligations, and interests together to establish a new company||Companies subject to the merger will bring all legal assets, rights, obligations, and interests back to the merging company.|
|Legal result||– Companies participating in consolidation will have to cease to exist.|
– The combined company enjoys everything that the combined companies have to offer; including the assets, interests, and unpaid debts of the company participating in the consolidation.
|– The merged company must cease to exist|
– The merged company is entitled to all rights and assets of the original company. In case the original company has outstanding debt, the merged company must also make repayment of this debt.
|Liability||The incorporated company will bear full liability. Including rights, legitimate interests, responsibilities, and obligations of the consolidated company.||Companies are merged after transferring rights, obligations, assets, etc. then the legal responsibility will be with the merging company.|